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2016 (8) TMI 807 - ITAT MUMBAI

2016 (8) TMI 807 - ITAT MUMBAI - TMI - Disallowance u/s 14A read with rule 8D - disallowance of indirect expenditure computed in accordance with Rule 8D(2)(iii), that is, after taking 0.5% of the average value of investments - Held that:- So far as the Ld. Counsel’s plea that, investment which have yielded taxable income should be excluded from the working of the average value, we agree with such a contention because these investments have yielded taxable income, therefore, they are outside the .....

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realm of ‘business purpose’ and this view has been upheld by the Tribunal in various decisions including that of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT ). Thus, we direct the AO to also exclude the strategic investment made in subsidiary companies for the purpose of working the disallowance of value of the investment. - However, so far as other contention that the investments which has not yielded dividend or tax free income duri .....

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t” form part of the income. The phrase “does not” conveys something done or to be done in present, that is, ‘income during the year”; and “shall not” conveys something about in future, a strong assertion or intention, that is, ‘not earned income in future’. Hence in our opinion, the phrase “shall not” covers a situation where income earned in future or whenever it is earned, then it shall not form part of the total income at any time. Thus, this contention of the assessee prima facie does not ap .....

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D SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER For The Appellant : Shri Bhupendra Karkhanis For The Respondent : Ms Meena Jain ORDER PER AMIT SHUKLA, JM: The aforesaid appeals have been filed by the assessee against separate impugned orders passed by Ld. CIT (Appeals)-39, Mumbai for the quantum of assessment passed under section 143(3) for the assessment years 2008-09, 2009-10 and 2010-11. Since the facts and issues involved in all the appeals are common, therefore, same were heard together and are be .....

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/- disallowed by the appellant on suo motto basis and the reasons assigned for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961 and the Rules made thereunder. (b) On the facts and in the circumstances of the case and in law, the lower authorities failed to appreciate that a sum of ₹ 1,22,223/- worked out by the appellant as expenditure disallowable u/s 14A is appropriate and reasonable towards administrative cost incurred for earning the exem .....

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3. The relevant facts qua the issue of disallowance made u/s 14A are that, the assessee has earned an exempt income of ₹ 41,48,878/- which was in the form of an dividend. The AO noted that the assessee had both exempt income yielding investments as well as business assets in the Balance-sheet. For both the purposes the assessee has maintained consolidated accounts, that is, both the activities have not been segregated. Accordingly, the AO required the assessee has to why disallowance unde .....

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and Reserves for the period from FY 1989-90 to FY 2007-08. Reliance in this regard is placed by assessee on the decision of the Hon ble Bombay High Court in the case of CIT V Reliance Utilities and Power Ltd, 313 ITR 340 (Bom). (b) Out of total exempt income (dividend) of ₹ 41,48,378/-, dividend of ₹ 35,86,886/- was received form Canara Rebeco Mutual Fund. The investment in the said mutual fund was made through investment broker M/s Practical financial Services Pvt Ltd, Mumbai, who w .....

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tment activity as the reasonable figure to be disallowed . 4. The AO rejected the assessee s contention on the ground that mere comparison of share capital and reserves fund vis-à-vis. investments cannot be said to be the test for establishing the fact that acquisition of investment have been made from own funds. Further, assessee has maintained consolidated accounts which preclude the possibilities of establishing one to one nexus between the expenses and the exempt income yielding inves .....

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computed on the basis of 0.5% of the average investment in accordance with Rule 8D(2)(iii). 5. Before the Ld. CIT(A) detailed submissions were made by the assessee which has been incorporated by the CIT(A) in para 5.2 from pages 10 to 17 of the appellate order. However, the Ld. CIT(A) considering the fact that there was decrease in the tax free investments; reduction in loan amount; and assessee had sufficient interest free/surplus funds to make the investments, accordingly, he directed the AO t .....

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alue of investments. Before us, the Ld. Counsel for the assessee submitted that out of the total investment shown as on 31st March, 2008 at ₹ 12,80,66,601/-, the investments which are giving taxable income (that is, income from such investments are not exempt) are ₹ 1,29,41,526/-; and strategic investments made for business purpose were at ₹ 8,93,25,000/-. These investments he contended that, should be removed from the working of the average value of investments. Apart from the .....

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he average value, we agree with such a contention because these investments have yielded taxable income, therefore, they are outside the purview Rule 8D(2)(iii) and cannot be part of average value of investments. Further so far as contention of the ld. Counsel that, assessee has made strategic investment by way of business necessity in associated and subsidiary companies, we agree with him that same should not be part of the investment for the purpose of disallowance, because the said investment .....

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e investment. 8. However, so far as other contention that the investments which has not yielded dividend or tax free income during the year should only be included, we are unable to accept the Ld. Counsel s contention with regard to Rule 8D(2)(iii) which lays down that, an amount equal to ½% of the average value of the investment, income from which does not or shall not form part of the total income, as appearing in the Balance-sheet of the assessee ,on the first day and the last day of t .....

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